Outsourcing, Offshoring, and the Presidential Campaign

It appears that both President Obama and Governor Romney are going to be accusing each other of being offshorers in the fall campaign. Both have a case, even if not exactly the one they are making.

Obama's case on Romney being an offshorer is that the companies owned by Bain Capital shipped many jobs overseas. Romney counters that the offshoring began after he had given up his role as a top executive at Bain, although he did still have a substantial stake in the company. He said that while he was running things the company only did domestic outsourcing, they did not ship jobs overseas.

As a practical matter, this would have a similar effect on the wages of the workers affected. Most workers in the economy probably earn some economic rent. This means that if we were to put their position up for competitive bidding to the whole world, there would be someone who was willing to the do their job for less money.

Fortunately for most of us, our jobs generally don't come up for competitive bidding so we can continue to enjoy this wage premium in bliss. Bain Capital's outsourcing put workers' jobs up for this sort of competitive bidding. Whether the auction was purely domestic, as Romney contends, or whether it involved the whole world, is secondary. Ordinary workers would see their pay cut.

Romney has focused his attack on President Obama on the claim that some stimulus dollars went overseas. This is surely true, since it would have been impossible to ensure that all stimulus spending remained in the United States. (Congress did include a "buy America" provision in the stimulus bill, which would have had the effect of reducing the portion of the stimulus spent outside of the country.) The more important question has been the general direction of President Obama's trade policy and the extent to which it imposes some groups of workers to competitive bidding for their jobs.

This is where Romney has the better case, although it is not clear that he would pursue any different policy. The trade policy of President Obama, like that of his immediate predecessors Presidents Bush and Clinton, has been focused on placing manufacturing workers in direct competition with low paid workers in the developing world. This has the effect of depressing their wages since firms can either directly or indirectly hire workers in developing countries who are paid a fraction of the wages of workers in the United States.

At the same time, his trade policy has done little or nothing to expose highly educated professionals like doctors and lawyers to the same competition. This policy has the predicted and actual effect of depressing the wages of less educated workers relative to the most highly paid workers. This policy is exacerbated by maintaining an over-valued dollar, which further depresses the wages of those workers exposed to international competition to the benefit of those who are largely protected.

President Obama has also done nothing to combat the corruption in the corporate governance structure whereby corporate board members are paid hundreds of thousands of thousands a dollars a year to look the other way as top management pillages the company. A policy that subjects less educated workers to the most vigorous possible competition, while maintaining protection for those at the top will redistribute income upward, as we have seen over the last three decades. Both candidates seem to largely support such policies.